Decline of German GfK Consumer Confidence to -29.7 in February

German consumers' expectations regarding income and intentions to buy big-ticket items decreased in response to the inflation figures for December in Germany.

Highlights

• German consumer confidence weakened in January due to inflation affecting income expectations.
• Indications of willingness to spend also indicated a negative outlook, presenting a bleak view of the German economy.
• Next, the focus of investors will be on US personal income/spending and inflation.

German GfK Consumer Confidence Declines

Amidst concerns of a possible German recession in Q1 2024, German consumer confidence came under scrutiny. The German GfK Consumer Climate Indicator dropped from -25.4 to -29.7 in February, falling below economists' forecast of -24.5.

Highlights from the January survey indicate:

• Income expectations plummeted by 13.1 points to -20, marking the lowest level since March 2023. The decline was attributed to recent inflation trends, with December's annual inflation rate rising from 3.2% to 3.7% due to the reintroduction of regular VAT.

• The willingness to make purchases decreased by 6 points to -14.8, influenced by elevated food and energy prices impacting consumer plans to buy large items.

• Conversely, the willingness to save indicator surged by 6.7 points to 14, reaching its highest point since August 2008.

• Economic expectations for the upcoming year also declined by 6.2 points to -6.6, marking the lowest level since December 2022 (-10.3).

This data illustrates the challenges facing German consumer confidence amid economic uncertainties.

Impact on Sentiment Toward ECB Interest Rate Goals

The weakened consumer income expectations and decrease in the willingness to make major purchases raise uncertainties about the German economy and could potentially influence the European Central Bank's (ECB) approach to interest rates. A continuation or a spread of these trends across other Eurozone countries might prompt the ECB to reevaluate its stance on interest rates.

EUR/USD Response to German GfK Consumer Climate Survey

Before the reveal of the German GfK Consumer Climate numbers, the EUR/USD currency pair ascended to a peak of $1.08488 before falling to a low of $1.08284. Subsequently, in response to the newly published data, the EUR/USD climbed to a high of $1.08304 before sliding to $1.08265. By the end of the week, the EUR/USD had declined by 0.16% to $1.08284.

260124 EURUSD 3 Minute Chart

Upcoming Economic Focus

Investor attention in the imminent future will center on the US economic calendar. Specifically, the US Core PCE Price Index and personal income/spending data are anticipated to be of significance. Analysts project a 0.3% month-on-month increase in personal income and a 0.4% escalation in personal spending for December. Furthermore, they foresee the Core PCE Price Index to grow by 3.00% year-over-year, down from 3.20% in November. Recent economic signals have heightened expectations of a gentle deceleration for the US economy, while opinions diverge on the possibility of a Federal Reserve interest rate cut in March. According to the CME FedWatch Tool, the probability of a 25-basis point March rate cut increased from 40.4% to 51.0% on Thursday. Enhanced US inflation and personal income/spending figures could diminish speculations on a March rate cut.